. Income Taxes

We account for income taxes using the liability method in accordance with ASC

740

Income Taxes

. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

December 22, 2017,

the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). As a result of the federal tax rate change, we recorded a provisional income tax benefit of approximately

$3.7

million in

2017.

In accordance with Staff Accounting Bulletin

No.

118,

we completed the analysis of the impact of the

2017

Tax Act, with

change to the provisional amount recorded in

2017.

2018,

we recorded an income tax benefit of approximately

$1.6

million. The primary driver of this tax benefit is related to the impairment and reclassification of indefinite-lived intangibles for in process research and development assets. Our effective tax rate for

2018

was

2.4%.

2017,

we recorded an income tax benefit of approximately

$11.7

million, of which

$6.6

million related to the reduction in the federal and state tax rates,

$4.8

million related to the use of our naked credit as a source of income to release a portion of our valuation allowance and the remaining

$0.2

million related to a refundable AMT credit. Our effective tax rate for

2017

was

18.6%.

2016,

we recorded an income tax expense of approximately

$1.8

million as a result of an increase in our effective tax rate to

14.7%.

Our effective tax rate in

2016

was impacted by our relocation to New York City, which has its own local tax rate and adds to the overall tax rate used for calculating the income tax provision.

We have completed calculations through

June 30, 2016,

under Internal Revenue Code Section

382,

the results of which indicate that past ownership changes will limit annual utilization of net operating losses (“NOLs”) in the future. Ownership changes subsequent to

June 30, 2016,

may

further limit the future utilization of net operating loss and tax credit carry-forwards as defined by the federal and state tax codes.

The components of the (benefit from) provision for income taxes from continuing operations during the

three

years ending

December 31, 2018

consisted of the following:

	2018			2017			2016
Current taxes:
United States	$	(2	)	$	3		$	11
Foreign		-			-			-
State		(82	)		(16	)		22
Total current taxes	$	(84	)	$	(13	)	$	33

Deferred taxes:
United States	$	(1,188	)	$	(8,777	)	$	-
Foreign		-			-			-
State		(360	)		(2,882	)		1,811
Total deferred taxes	$	(1,548	)	$	(11,659	)	$	1,811

(Benefit from) provision for income taxes	$	(1,632	)	$	(11,672	)	$	1,844

Deferred tax assets and liabilities as of

December 31, 2018

and

2017

consisted of the following:

	2018			2017
Deferred tax assets:
Depreciation	$	-		$	100
Research & Experimental and Orphan Drug tax credit carry-forwards		35,435			33,496
NYS investment tax credit carry-forwards		1,282			1,284
Net operation loss carry-forwards		188,588			177,313
Capitalized research and development expenditures		1,066			3,066
Stock compensation		5,236			5,666
Other items		819			1,279
Total gross deferred tax assets		232,426			222,204
Less valuation allowance		(232,174	)		(217,382	)
Deferred tax assets		252			4,822
Deferred tax liabilities:
Indefinite-lived intangibles		(136	)		(6,397	)
Depreciation and amortization		(144	)		-
Deferred tax liabilities		(280	)		(6,397	)
Net deferred tax liability	$	(28	)	$	(1,575	)

We maintain a tax valuation allowance on deferred tax assets considering our history of taxable losses and the uncertainty regarding our ability to generate sufficient taxable income in the future to utilize these deferred tax assets. For

2018

and

2017,

we incurred net losses for tax purposes. We recognized a full tax valuation against deferred tax assets at

December 31, 2018

and

2017.

2018

and

2017,

we recognized deferred tax liabilities of

$0.03

million and

$1.6

million, respectively, to reflect the net tax effects related to the impairment and reclassification of indefinite-lived intangibles for in process research and development assets.

The following is a reconciliation of the U.S. statutory income tax rate to our effective tax rate for the years ended

December 31, 2018,

2017,

and

2016:

	2018			2017			2016
U.S. Federal statutory rate		21.0	%		34.0	%		34.0	%
State income taxes, net of Federal benefit		0.9	%		1.5	%		10.8	%
Foreign rate differential		0.0	%		(0.6	%)		2.6	%
Research and experimental and Orphan Drug tax credit		2.3	%		6.4	%		(50.6	%)
Effect of federal and state tax rate changes		0.3	%		(6.1	%)		(43.0	%)
Tax Reform Impact		0.0	%		13.9	%		0.0	%
Change in fair value of contingent consideration liability		1.8	%		(1.4	%)		(12.4	%)
Stock option shortfalls		(2.2	%)		(3.1	%)		22.3	%
Other		(0.5	%)		(0.1	%)		0.1	%
Change in valuation allowance		(21.2	%)		(25.9	%)		50.9	%
Effective tax rate		2.4	%		18.6	%		14.7	%

As of

December 31, 2018,

we had available, for tax return purposes, unused federal NOLs of approximately

$712.7

million, of which

$664.1

million of NOLs generated prior to

2018

will expire in various years from

2019

2037

and

$48.6

million of NOLs generated in

2018

can be carried forward indefinitely. Also, we had available, for tax return purposes, unused state NOLs of approximately

$577.3

million, which will expire in various years from

2030

2038

and unused foreign NOLs of approximately

$10.3

million, which can be carried forward indefinitely.

We have reviewed our nexus in various tax jurisdictions and our tax positions related to all open tax years for events that could change the status of our ASC

740

Income Taxes

liability, if any, or require an additional liability to be recorded. We have

not,

as of yet, conducted a study of our research and experimental (“R&E”) credit carry-forwards. Such a study might result in an adjustment to our R&E credit carry-forwards, but until a study is completed and any adjustment is known,

amounts are being presented as an uncertain tax position under ASC

740

except for uncertain tax positions acquired in connection with the MIP acquisition. A full valuation allowance has been provided against our R&E credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be

impact to the statements of operations and comprehensive loss if an adjustment was required.

As of

December 31, 2018,

we are subject to federal, foreign, and state income tax. Open tax years relate to years in which unused net operating losses were generated or, if used, for which the statute of limitation for examination by taxing authorities has

not

expired. Our open tax years extend back to

1997.

amounts of interest or penalties were recognized in our consolidated statements of operations or consolidated balance sheets as of and for the years ended

December 31, 2018,

2017,

and

2016.

Our R&E and Orphan Drug tax credit carry-forwards of approximately

$36.1

million at

December 31, 2018

expire in various years from

2019

2038.

As of

December 31, 2018

and

2017,

we have

not

recognized any liability for uncertain tax positions, because of our full valuation allowance. We will recognize interest and penalties related to these positions, should such costs be assessed. The recognition of unrecognized tax benefits would

not

affect our effective tax rate because the tax benefit would be offset by an increase in our valuation allowance.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended

December 31, 2018

and

2017.

	2018			2017
Beginning uncertain tax benefits	$	1,951		$	2,661
Prior year - increases (decreases)		-			(710	)
Current year - increases (decreases)		-			-
Settlements		-			-
Expired statuses		(7	)		-
Ending uncertain tax benefits	$	1,944		$	1,951